Vietnam needs to act now to save pension fund or economy could be at risk: World Bank

An elderly walks along the Hoan Kiem Lake in Hanoi, Vietnam, June 27, 2017. Photo by Reuters/Kham

The bank forecasts the national pension fund will run out by 2030 due to the aging population.

Vietnam's economy could be at risk if nothing is done quickly to fix its pension system, the World Bank has pointed out after conducting two years of research.

The country may encounter an imbalance between collection and spending of the fund in the future, when the number of old people receiving welfare payments is higher than those of working age who are contributing to the fund, said Ousmane Dione, the World Bank's country director for Vietnam.

According to the report, Vietnam’s pension fund will run out by 2030, and the deficit will account for 2.5-3 percent of the country’s gross domestic products (GDP) in 2060-2070, Dione told a meeting with Deputy Prime Minister Vuong Dinh Hue in Hanoi on Thursday.

He went on to say that Vietnam’s pension fund is facing an aging population, and that pension payments are higher than what workers contribute to the fund via their montly salaries.

The bank suggested that Vietnam should raise its pension payments in accordance with inflation, but ensure the increased sum is lower than the minimum wage.

The country should also raise its retirement age for both male and female workers to the same level step by step.

The retirement age in Vietnam is currently 60 for men and 55 for women.

“WB studies are an important foundation for Vietnam to have confidence in making new decisions on its pension fund and retirement age,” Deputy PM Hue responded.

Vietnam reached a turning point in 2015 when it started to become one of the countries with the fastest aging populations in the world, according to a recent report by the labor ministry.

The number of Vietnamese who are over 65 will rise from 6.3 million now to 18 million by 2040, accounting for more than 18 percent of the population and transforming Vietnam from a young society into an old one, a labor ministry report quoted the United Nations as saying.

Life expectancy at birth in Vietnam is 76, and Vietnamese people live longer than almost all their peers in Southeast Asia, ranking third for life expectancy at birth.

The labor ministry has proposed gradually raising the retirement age for men and women to 62 and 60 respectively and suggested a step-by-step approach by adding six months to the current retirement age every year starting from 2021.